A TALE OF 2 DISCOUNTERS

Walmart, Target forecasts show lower-income shoppers will continue to be pressured

Walmart’s fourth-quarter forecast signals the world’s largest retailer stands to face more obstacles than competitors such as Target this holiday season as price-conscious consumers hold back in the sluggish U.S. economy.

While Walmart beat analysts’ estimates on third-quarter profit Thursday, sales in the U.S. and an earnings forecast for this quarter trailed expectations, pushing the shares down the most in more than six months, falling 3.6 percent to $68.72. Meanwhile, Target gained 1.7 percent to close at $62.44 after it met earnings projections.

“That Walmart customer continues to be under pressure, and that pressure will remain,” said Brian Yarbrough, an analyst for Edward Jones & Co. “Target’s average consumer is higher-income and isn’t under as much pressure.”

The results came a week before the Thanksgiving weekend when retailers unleash discounts and deals to lure shoppers as part of an unofficial start to the holiday shopping season.

Executives from both chains mentioned the economy as a potential drag on sales, though in different terms. Target’s customers have more confidence in their personal finances while also being uncertain about the long-term health of the U.S. economy, Kathee Tesija, the chain’s executive vice president of merchandising, said on a call with analysts.

Meanwhile, Walmart’s Chief Financial Officer Charles Holley said the economy continues to pressure its customers. At U.S. Walmart stores and at Sam’s Club, the company’s chain of membership warehouses, and customers traded down to cheaper products, such as going to chicken from beef and moving away from premium brands.

Target may have an edge this holiday season with its focus on exclusive products, said Natalie Berg, an analyst at researcher Planet Retail in London.

Walmart’s advantage on price may be slipping too, Yarbrough said. Target has said it will match prices in its stores with items online at large competitors, including Walmart and
Amazon.com. Target’s loyalty card, which offers 5 percent off purchases, also may bridge that gap, he said.

Still, Walmart has posted five straight quarters of same-store sales gains in the U.S. as it added more items and cut prices.

Walmart’s third-quarter net income rose 9 percent to $3.64 billion, or $1.08 a share, from a year earlier. The chain’s fourth-quarter profit will be $1.53 to $1.58 a share, below analysts’ estimate of $1.59.

At Target, third-quarter net income rose 15 percent to $637 million, or 96 cents a share. Fourth-quarter profit will be $1.45 to $1.55 a share, compared with analysts’ projections of $1.50.

Also Thursday, Walmart disclosed that it has expanded an internal investigation into bribery accusations in Mexico to Brazil, China and India, according to a U.S. Securities and Exchange Commission filing that accompanied its financial results.